Tuesday, November 27. 2007
Posted by Editors in International Economics on Tuesday, November 27. 2007
This is a guest blog post by Don, who lives and works in England:
I am an expat American who has been a staunch advocate of free-market capitalism for many years, and still mostly believe that. In recent years I have come to believe that the pressures of globalisation have opened certain fissures in the free-market model and have come to better appreciate certain aspects of the welfare state.
I have come to see definate advantages to certain aspects of the welfare state over the past few years as I've come to know the National Health Service (NHS) better and have observed the problems that Americans have with the health care insurance system in the US while being thankful that I don't have to deal with it personally. British historian Tony Judt wrote an essay masquerading as a book review in the New York Review of Books which contains some interesting analysis. It is a review of Robert Reich's recent book: "Supercapitalism: The Transformation of Business, Democracy, and Everyday Life" (Amazon.com, Amazon.de).
Judt first takes Reich to task for penning a trenchant critique of the current state of the world but wimping out in the end by refusing to identify the villains of the story, but his most interesting point comes late in the book review when Judt writes about the return of fear to the citizenry of Western countries:
I agree. In the case of the US I might add the fear of being overwhelmed by illegal immigrants and the fear of losing one's property due to catastrophic health problems. I think this deserves some discussion.
Related post in the Atlantic Review: Using the United States to Scare Germans
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Anonymous - #1 - 2007-11-27 17:45 -
David - #2 - 2007-11-27 18:02 -
Well put, Don. The globalisation of capital is fueling the subprime mortgage crisis in the States. Homeowners are unable to negotiate the terms of their mortgages since the paper has been sold and resold, and may be held by the Landesbank in Saxony - which has zero interest in keeping an American community intact. I do think the fear of illegal immigrants is overblown in the States, however.
Anonymous - #3 - 2007-11-27 19:24 -
YAWN. I think you mean renegotiate....
Sue - #4 - 2007-11-27 20:51 -
Did fear ever leave? Maybe for a brief period in the 1990s. However, in the 80s Reagan was going to blow up the world and/or AIDS was going to finish us off, in the 70s we had stagflation, high interest rates, gas queues, the draft and horrible pop music, in the 60s we had race riots, in the 50s we had polio and disgruntled housewives, in the 40s the War, in the 30s the Depression, in the 20s gangster street wars and Prohibition, etc. There will always be some illegal immigration, but 11 million is too many. That number ruins the schools and hospitals where large numbers of illegals live (see "tragedy of the commons"), and it drives down wages for the unskilled to ridiculously low levels. It makes a mockery of minimum wage and OSHA regulations. Anyone who supports the concept of labor unions but is unconcerned about illegal immigration is a hypocrite. If the Democrats want to recover their populist base that they had before Reagan, they had better take this issue seriously. Re property: the subprime mortgage crisis and medical bankruptcy foreclosures are separate and unrelated issues. Anyway, 96% of American mortgage holders are paying on time. The subprime crisis is hurting people who are victims largely of their own irresponsibility/ignorance and the irresponsibility of the banks. But these were business transactions freely entered into, and a mortgage is not a basic human right.
David - #5 - 2007-11-28 00:09 -
Re: the subprime mortgage crisis. We will all pay the price and the shockwaves are just beginning to be felt. Here is an excerpt from the Larry Summers FT article Joerg links to in the next post: "Second, it is now clear that only a small part of the financial distress that must be worked through has yet been faced. On even the most optimistic estimates, the rate of foreclosure will more than double over the next year as rates reset on subprime mortgages and home values fall. Estimates vary, but there is nearly universal agreement that – if all assets were marked to market valuations – total losses in the American financial sector would be several times the $50bn or so in write-downs that have already been announced by big financial institutions. These figures take no account of the likelihood that losses will spread to the credit card, auto and commercial property sectors. Nor do they recognise the large volume of financial instruments that depend for their high ratings on guarantees provided by credit insurers whose own health is now very much in doubt." Real estate prices in the US FELL 4.3% last month. That affects tens of millions of homeowners who have been using their homes as virtual ATM machines for the last 10 years. Fear? Wait until March 2008 when another $500 billion of adjustable rate mortgages reset...
Joerg - Atlantic Review - #5.1 - 2007-11-28 00:23 -
And then there are [url=http://atlantic-community.org/index/articles/view/Economic_Mismanagement_and_the_Future_of_America][u]"The Economic Consequences of Mr. Bush"[/u][/url]
Sue - #5.2 - 2007-11-28 01:11 -
Well, just maybe people shouldn't borrow money they know they can never pay back. I wouldn't think this would be such a difficult concept. I don't doubt that there will be pain, but I will be very angry if the US government bails out these banks and their customers with tax money. It has been obvious that property prices have inflated beyond reason in in the last 10 years, fueled by excessively easy credit and the practice of "flipping" real estate. Also, many of these loans preyed on people's ignorance and near illiteracy. Bankers should learn to be professionals again and not con men. A class on personal finance should be mandatory in every US public high school. Ironically, the government pressured banks to loan to economically marginal clients for the sake of "fairness." Look where it got us.
Don S - #6 - 2007-12-03 11:36 -
People seem to be taking this as a US-centric issue but what Judt is writing about is general to western society in general - the symptoms take different forms in different countries. I doubt Germans or French worry about their health insurance but I see plenty of angst about whether they can get or keep decent jobs in the face of globalisation. The Brits are worried abotu their jobs and about whether the NHS can provide decent health care - also about the restive younger generation in the large Muslim community. Fear of terrorism is very real here in the UK. The US also have the jobs fears - although the labor market is far more vibrant in the US than in most of the EU. But Americans worry about their health insurance system - and for good reason. They also worry about the swell in the numbers of illegal immigrants. I can't really tell whether this is a well-grounded fear because I haven't lived in the US since 1999.
Don S - #7 - 2007-12-03 11:47 -
"Real estate prices in the US FELL 4.3% last month. " That seems a bit - steep for a single month, Dave. I see the same problem that you do - it's just tht I expect the price crash to work itself out a bit more slowly than that. The UK has a potential housing price crisis which makes the US one pale by comparison. Prices have been stagnatn for about a year but only really began to decline last month with a 1% drop. There is a silver lining to this problem; many people have been priced out of the housing market completely by the high proces. A drop in prices will eventually help these people buy houses - after the banks begin lending again, anyway...
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